On Tuesday, Universal Filmed Entertainment Group (UFEG), a division of the Comcast Corporation, and AMC Entertainment Holdings, announced a multi-year agreement under which UFEG films will be exhibited in AMC theaters in the U.S. The agreement includes at least three weekends (17 days) of theatrical exclusivity for all Universal Pictures and Focus Features theatrical releases, at which time the studio will have the option to make its titles available across premium video on demand (PVOD) platforms, including through AMC Theaters on Demand. In the coming weeks, the companies will begin discussions surrounding international distribution agreements.
The pact is a precedent-busting leap forward for Hollywood after years of studios railing against the required exclusive theatrical window for wide releases, which typically covered a 60-90 day period. Now, rather than wait upwards of two months to deliver a newly released film across at-home platforms, Universal can choose to reroute attractive programming straight to viewers on their couch within a far quicker turnaround.
This deal is an acknowledgment of the new reality of consumer preferences. Theatrical ticket sales have been on a steady decline since 2002 as the rise of at-home entertainment has usurped our attention span. Something had to change for the long-term health of the industry.
Though Hollywood was already slowly transitioning to prioritize direct-to-consumer business, the COVID-19 pandemic has expedited that process. However, a move such as this has been discussed for years for more practical reasons.
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“It’s all about the piracy window, that’s why it’s been in the works for so long,” David Offenberg, Associate Professor of Entertainment Finance in LMU’s College of Business Administration, told Observer. “The 30 to 90 days that a film is no longer in theaters but can’t be seen anywhere else is a huge window for piracy. This deal allows studios and AMC to continue monetizing within that window.”
Universal can now leverage its first-mover advantage and set the ground rules for every other studio and theater chain. It’s likely that we’ll see similar deals struck between studios and exhibitors in the coming weeks and months that will follow suit. Reigning box office champion Disney is expected to be the final holdout as the piracy window isn’t as significant a threat to their studio as it is to others.
As Offenberg explains, this also positions AMC as the market leader in PVOD thanks to their existing customer relationships and targeting infrastructure through AMC A-list and other loyalty programs. As of now, PVOD does not boast guild agreements, marketing specific strategies, or a centralized curation and discovery platform. With AMC on Demand, the theater—which has been attempting to stave off bankruptcy amid the pandemic—can now spearhead PVOD’s development. The company’s stock has already risen nearly 8% since the deal was announced Tuesday. (Meanwhile, Regal Cinemas parent Cineworld took a double-digit dip.)
The full breadth of this new development won’t be understood in the immediate aftermath of its unveiling. AMC, the biggest domestic theater chain, still only represents roughly 25% of available screens. If the other 75% of theaters don’t get on board, this deal is null and void. But Shawn Robbins, Chief Analyst at Box Office Pro, believes this could ultimately serve as a mutually beneficial new normal for studios and exhibitors, though he acknowledges that firm conclusions can’t be drawn just yet. Here’s how he explained it in an email to Observer:
“This presents a significant evolution of the exhibitor-studio relationship, but one that seems to acknowledge compromises on both sides in an effort to keep things harmonious. The ability for a major theater chain to reap some benefits from PVOD releases could offset some of the loss of a long theatrical window, but the expectation here is that Universal still recognizes the importance of those longer runs for films doing well at the box office. Conversely, if a film underperforms theatrically, the studio now has some leeway to push it across multiple platforms without the dead space between theaters dropping it after two weekends — to make room for more lucrative titles — and a home video release months later. If managed smartly, this could be a win-win type of precedent for many players, but it’s something we’ll have to see unfold in the coming years and reassess at a later point in time.”
As the exclusive theatrical window begins to shrink, it is possible that the AMC-Universal deal could also represent a step forward for tech-backed streaming companies such as Netflix and Apple (AAPL) TV+. The former has infamously haggled with major exhibitor chains over the exclusive theatrical window for high-profile films such as Martin Scorsese’s The Irishman. As an online-distribution platform first and foremost, Netflix never conceded to the 60-day window, which is why their Oscar-hopeful films play for limited three-week theatrical engagements across a smattering of coastal screens.
While the deal between AMC and Universal wouldn’t make sense for a Netflix—it’s difficult to imagine the streamer sharing revenue based on viewership performance on the platform—it does potentially move us one step closer to streaming services toying with some form of wide theatrical releases (just in time for Dwayne Johnson’s big budget Netflix blockbuster Red Notice). However, that will also depend on how much money a streamer is willing to spend on marketing, where a studio can invest between $120 million and $140 million for a tentpole feature.
“The thing that makes a movie work well in a theater is P&A [promotion and advertising] and the streamers aren’t going to spend P&A,” Offenberg said. “Most of the marketing for streaming movies happens on platform. Yes, they do some billboard and commercials, but they’re not spending big P&As. As long as they don’t do that, I don’t think theaters will be too open.”
Until we know the terms of the deal—is the box office split changing? What percentage of PVOD revenue is AMC receiving?—it’s difficult to determine who the winners and losers are. But in the immediate aftermath, the AMC-Universal deal has the power to reshape the cinematic ecosystem.